BOA SAYS NO TO CORRECTION OF PRINCIPAL: “UNFAIR AND UNEXPLAINABLE”

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EDITOR’S NOTE: Moynihan is pulling out the old argument, trying to stir up people who have been paying their mortgage so he and the other mega banks won’t be required to cough up trillions of dollars they stole through fraudulent appraisals of property inducing people to get into “loan” transactions that were guaranteed to fail, which the mega banks were betting on, so they would win going both ways. They did the same thing to investors with fraudulent appraisals (ratings) inducing people to get into MBS transactions, which were guaranteed to fail, and which the mega banks were betting on, so they could win going both ways.

What he is saying is that it is too hard to explain to people who have been paying their mortgage payments why others, who were not paying their mortgage payments, are getting a break. What he means is that if they DID explain it as a clawback from a fraudulent series of transactions, millions more people, whether they were paying or not, would demand their money back too. They will realize that just because they CAN afford to take the loss on a fraudulent transaction, doesn’t mean they SHOULD take the loss any more than anyone else.

And THAT in turn would be the end of the mega banks and the grip on this country’s power structure. because it would deplete every bit of equity they have and remove them from the table of active players in banking, leaving the REST of the banking industry, consisting of over 7,000 banks and credit unions to pick up the pieces which will be remarkably easy to do, and will produce no catastrophe other than for the those who continue to benefit from a PONZI scheme that is remaining alive, morphing into the next great catastrophe.

See Simon Johnson’s extremely clear, well written analysis, with citations and back-up for everything he says and I say www.baselinescenario.com.

AND Moynihan is issuing a tacit threat: everyone who relies on dividend income and is expecting dividend income from BOA will be on the short end of the stick — kind of like the lowest people in every PONZI scheme. I’m not saying they should be punished for believing this drivel from Moynihan. In a nation of laws, however, it is no argument at all to leave “well enough alone” if it means that victims remain uncompensated because other people, possibly without knowledge of the tainted aspect of the money, will lose.  Such shareholders in the mega banks may also be victims, at least some of them, and they may have their remedies too. In the end, there won’t be enough money to go around to satisfy everyone, but one thing is for sure — in a nation of laws — the perps should do the walk, not the victims.

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NY Times

Bank Chief Rejects Idea of Reducing Home Loans

By NELSON D. SCHWARTZ

Showing resistance for the first time against government pressure to write off tens of billions worth of mortgage debt, Bank of America executives said on Tuesday that the idea was unworkable and warned that it would be unfair to borrowers who had managed to stay current on their loans.

“There’s a core problem that if you start to help certain people and don’t help other people, it’s going to be very hard to explain the difference,” said Brian T. Moynihan, the chief executive of Bank of America. “Our duty is to have a fair modification process.”

All 50 state attorneys general, as well as a host of federal agencies, are pushing for a settlement over investigations into foreclosure abuses by major mortgage servicers that could cost the industry $20 billion or more. Much of that money would be earmarked to reduce principal owed by homeowners facing foreclosure.

But picking just who to help is among the thorniest questions facing government regulators, as well as the banks themselves. Even the most outspoken attorney general on the issue, Tom Miller of Iowa, acknowledged on Monday that too generous a program might encourage homeowners to walk away from properties where the value of the loan exceeded how much the underlying property was worth.

Indeed, industry experts estimate that nearly a trillion dollars worth of mortgage debt is “underwater,” a result of house prices having fallen since the original loans were made. Federal officials hope a settlement with the servicers will help individual borrowers and provide a cushion for the weak housing market.

Officials of Bank of America, the nation’s biggest mortgage servicer, argue that any effort to help troubled borrowers should not penalize borrowers who are underwater but have managed to make their monthly payments.

“There may be as much as $1 trillion worth of mortgages that are underwater,” said Terry Laughlin, the Bank of America executive whose unit, Legacy Asset Servicing, handles mortgages that are delinquent or in default. “What do you do for those borrowers that have a job but have negative equity and have paid on time and honored their obligations?”

“This is an unsolvable question,” he said. “It’s a very slippery slope.”

The comments by Mr. Moynihan and Mr. Laughlin came at a daylong meeting with investors and analysts in New York, the first of its kind for Bank of America since 2007.

Despite fierce criticism by regulators and political leaders that its efforts to help troubled borrowers have fallen short, Bank of America executives insist that the number of successful modifications the bank has completed is on the rise. The bank says more than 800,000 mortgages have been modified in the last three years.

Writing down billions of principal now could actually retard the recovery by encouraging borrowers to default, they argue. “It’s not that we don’t want to help troubled borrowers,” Mr. Laughlin said. “It’s a moral hazard issue.”

Late last week, the attorneys general presented the five biggest mortgage servicers, including Bank of America, with a 27-page proposal that would drastically reshape how they deal with homeowners facing foreclosure. It did not include a specific dollar figure, but government officials say they want to combine any overhaul of the foreclosure process with a monetary settlement that could finance more modifications for troubled borrowers.

The existing modification program created by the Obama administration, known as HAMP, has helped far fewer borrowers than originally promised. It also faces fierce opposition from Republicans in the House of Representatives, who voted last week to kill the program.

Mr. Moynihan believes investors who hold trillions in mortgage securities have to be involved in any settlement. It is not exactly clear what role they would play as part of the settlement with the federal government.

Officials at Bank of America, as well as other large servicers, declined to comment on the specifics of the 27-page proposal, and the industry has been cautious about fighting back too aggressively, mindful of the tales of robo-signing and other abuses that prompted the investigation by the attorneys general and federal regulators last fall.

What’s more, consumers and politicians are keenly aware that Bank of America and other financial giants have staged a remarkable turnaround since the government bailed out the industry after the collapse of Lehman Brothers in 2008.

“I think reasonable minds will prevail on this,” Mr. Moynihan said. “We do push back and we get to reasonableness.”

Still, the comments at Tuesday’s investor meeting are a preview of the arguments the industry is poised to make more forcefully in the weeks ahead as it negotiates with the attorneys general and other regulators behind closed doors. On Monday, Mr. Miller said he hoped a settlement could be reached within two months.

As the huge volume of loan losses recedes and the economy improves, Mr. Moynihan said his company had the power to earn $35 billion to $40 billion a year. Bank of America lost $2.2 billion in 2010, weighed down by special charges and the lingering effects of the housing bust and the recession on consumers.

He also reiterated his position that the long wave of acquisitions undertaken by his predecessors was over. “I can’t stress enough to you how much of a peace dividend we’ll get without mergers,” Mr. Moynihan said. “That peace dividend is effectively a permanent dividend.” The bank intends to resume payouts to shareholders in the second half of 2011.

FCIC Calm Before the Storm: Bankers Still Basking in Their Own Glory

Phil Angelides, the former state treasurer of California who is the commission’s chairman, told Mr. Blankfein “it sounds more like you were selling cars with faulty brakes and then buying insurance on the driver.”

Mr. Angelides, who lost the governor’s race in California to Gov. Arnold Schwarzenegger in 2006, pointedly compared some Wall Street chief executives to blackjack players who could win huge amounts of cash but not lose anything.

The only thing about the current situation that gives me some comfort is the eerie similarity with similar hearings that took place after the the 1929 crash. Stuffed with arrogance and hubris, these bankers have always regarded themselves as the fourth branch of government. As Rothschild said, if you have the purse strings you have the power (paraphrasing). But every so often the bankers get a spanking and some even go to jail.

It is difficult to understand the magnitude of their destruction even now. We know a lot of people lost money, income, savings, wealth and dignity over the course of this mess. But we still have yet to feel the pain of title defects when the title insurers and lawyers start balking at supposedly clear or marketable title created at the inception and during transfers of interests in these loans. And the full loss in taxes on reported income has not been explored, which might (if governments do anything about it) be a positive offset to some of our problems.

And of course the final recognition that there is no where to hide on principal reduction. The only question, which I asked two years ago before this exploded, is how to share the losses so that nobody gets destroyed. (My solution was “amnesty for everyone”, but nobody paid attention). Right now we have fewer TITANS controlling more wealth and the rest of us sucking wind where there was money. That is our money they are controlling. They didn’t earn it, and they didn’t obtain it through normal commerce. They got it through fraud.

So at some point we are going to be required to accept one of two things: (1) the perpetrators get to keep their bounty or (2) the victims are restored, as much as possible, to the condition they were in before the fraud. If we choose option 1 then we are headed down the same rabbit hole that deceived everyone into thinking everything was all right while the banks siphoned the life out of our economy. If we choose option 2, then we start on the road to recovery, regeneration and rejuvenation of a nation that for the sake of everyone needs to succeed.

January 14, 2010 New York Times

Few Burns for Four Bankers on the Hot Seat

WASHINGTON — The four bankers of the apocalypse strode into the Congressional hearing room and formed a crooked line. They raised their hands haltingly, looking at one another as if to see whether the other guys were going to do it, too. It was one of the more indecisive swearings-in you will ever see on Capitol Hill.

As cameras clacked Wednesday, four of the nation’s highest financial fliers took their places before the 10-member Financial Crisis Inquiry Commission charged with determining the causes of the nation’s financial debacle.

The bankers — Lloyd C. Blankfein of Goldman Sachs, Jamie Dimon of JPMorgan Chase, John J. Mack of Morgan Stanley and Brian T. Moynihan of Bank of America — joined a gallery of titans who have suffered through this ritual: tobacco executives, automakers and baseball’s steroid users, among others. Few Americans remember what they said, but the images endure as cultural mug shots.

Mr. Dimon (the silver-haired one) arrived first Wednesday morning, standing with his arms folded behind his witness chair, smiling for the cameras. He accepted a small packet of peanut butter cookies from a woman in the audience who rushed up to him. He was joined in chit-chat by Mr. Blankfein (the bald one), then Mr. Moynihan (the baby-faced one).

Mr. Mack (the bushy-eyebrowed one) stood apart from the others in the back of the hearing room. “I’m not going up there,” he said to no one in particular, resisting the photographic firing squad until the last possible second.

Then the gang that couldn’t oath straight mumbled its “I do’s.”

For those anticipating a cathartic ceremony of dressing-downs, apologies or verbal brawling, there was little of it during the three-and-a-half-hour hearing. Nor did the circular House hearing room resemble anyone’s idea of a circus tent; it was packed but quiet, scattered with a few innocuous protesters. The 10 commissioners pressed the bankers on executive compensation, on managing risks and on lending practices, keeping up a brisk pace while the witnesses fidgeted like busy people who all had planes or trains to catch.

The initial round of questions and responses provoked disapproval, a few pointed fingers and sporadic shows of humility from the witnesses. “If you do everything right in business, you’re going to make mistakes,” said Mr. Dimon.

Labored metaphors abounded. Phil Angelides, the former state treasurer of California who is the commission’s chairman, told Mr. Blankfein that he sounded like he was selling cars with faulty brakes and then buying insurance on the driver.

Bill Thomas, the panel’s vice chairman and a cantankerous former congressman from California, compared the work of the commission to an iceberg that was only one-eighth visible over the water.

Commissioner Byron S. Georgiou noted that the banks had “eaten their own cooking” (sort of a gastronomic version of the “made their own bed” cliché). Mr. Mack heartily agreed.

“We did eat our own cooking,” he said. “And we choked on it.”

After Mr. Angelides called for a quick break, the chief executives bolted — except for Mr. Mack, who stayed behind at the witness table. “What are people supposed to think when they see these bankers taking big bonuses?” one reporter asked Mr. Mack, who began his answer by noting that he did not get a bonus. Behind him, a woman wearing a Washington Nationals baseball cap was scurrying around, trying to get people to take her homemade fliers denouncing the Bank of America. She wore a “Fire Kenneth Lewis” T-shirt (Mr. Lewis was until recently the bank’s chief executive).

“I’m here because I want to put these guys in jail,” said the woman, Judy Koenick, of Chevy Chase, Md.

No stranger to muscular but diminished adversaries, Mr. Angelides, who lost the governor’s race in California to Gov. Arnold Schwarzenegger in 2006, pointedly compared some Wall Street chief executives to blackjack players who could win huge amounts of cash but not lose anything. Mr. Dimon responded, “You can lose your job, and your reputation.”

Finally, before lunchtime, Mr. Angelides dismissed the executives.

A reporter asked Mr. Mack if the experience had been fun. “Well,” he said, making his way to the exit, “it’s just something that we had to do.”

Following a few feet behind, Mr. Dimon made the mistake of stopping to chat with someone and found himself gridlocked in a solo press conference.

Why were the chief executives not more apologetic? a reporter asked.

People “have to be very specific” when asking for apologies, Mr. Dimon cautioned.

He squared his shoulders and headed for the back door, only to meet an insistent question from Jonathan Karl of ABC.

“Mr. Dimon, does Wall Street get it?” Mr. Karl asked the banker, who kept walking and had nothing more to say.

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